Teva Reports Third Quarter 2014 Results
Revenues of $5.1 billion, in line with the third quarter of 2013. Excluding the impact of the divestment of the U.S. OTC plants and of foreign exchange fluctuations, sales grew organically by 2%.
Non-GAAP operating income of $1.5 billion, an increase of 13% from the third quarter of 2013. GAAP operating income of $1.1 billion, up 39%.
Non-GAAP net income of $1.1 billion, an increase of 6%. GAAP net income of $876 million, up 23%.
Non-GAAP diluted EPS of $1.32, an increase of 4%. GAAP diluted EPS of $1.02, up 21%.
Strong cash flow from operations of $1.4 billion, an increase of over 200% compared to the third quarter of 2013.
Generic medicine profitability improved 40% to reach $556 million.
EPS guidance for full-year 2014 raised to $5.00-5.10, from $4.90-5.10.
Company increases its share repurchase program to $3 billion, with purchases to commence promptly; represents an increase of $1.7 billion to the existing program.
JERUSALEM--(BUSINESS WIRE)--Oct. 30, 2014-- Teva Pharmaceutical Industries Ltd. (NYSE:TEVA) today reported results for the quarter ended September 30, 2014.
"The effort we have put forth thus far in 2014 towards solidifying our foundation to drive organic growth is reflected in our strong third quarter results. We delivered improvement in profitability in all businesses, particularly in global generics, which saw profitability increase by 40% year over year. The quarter results are an important example of Teva's commitment to strengthen our global leadership position in generics, fully execute our cost reduction program, and focus on cash and cash flow generation. We also remain fully committed to transform and simplify our operational network and make quality a competitive competency for us," stated Erez Vigodman, President & CEO of Teva.
"We recently announced our strategic decision to focus our therapeutic areas, and, at the same time, we continue to see progress in both the development and commercialization efforts of new specialty products including our NDA for hydrocodone bitartrate ER tablets, which was accepted by the U.S. Food and Drug Administration. Our pipeline is poised to deliver significant long-term value and we will continue the efforts to further deepen and develop it."
Erez Vigodman continued, "We are well positioned to achieve our goals for 2014. Additionally, our Board of Directors has approved to resume and increase our share repurchase program. Leveraging our strong cash flow, we will continue to focus on creating value through a balanced approach to capital allocation via dividend distribution and share repurchases while continuing to pursue strategic business development opportunities."
Generic Medicine Segment
Generics
Three Months Ended September 30,
2014 2013
U.S.$ in millions / % of Segment Revenues
Revenues $ 2,432 100.0% $ 2,489 100.0%
Gross profit 1,078 44.3% 984 39.5%
R&D expenses 134 5.5% 119 4.8%
S&M expenses 388 16.0% 469 18.8%
Segment profitability* $ 556 22.9% $ 396 15.9%
*
Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
Generic Medicine Revenues
Generic medicine revenues in the third quarter of 2014 amounted to $2.4 billion, a decrease of 2%, or 1% in local currency terms, compared to the third quarter of 2013.
Generic revenues consisted of:
U.S. revenues of $1.1 billion, a decrease of 1% compared to the third quarter of 2013. The decrease resulted mainly from a decline in sales of amphetamine salts (the generic equivalent of Adderall®) and the loss of exclusivity of niacin ER (the generic equivalent of Niaspan®). This decrease was largely offset by sales of products sold in the third quarter of 2014 that were not sold in the third quarter of 2013, the most significant of which were capecitabine (the generic equivalent of Xeloda®) and omega-3-acid ethyl esters (the generic equivalent of Lovaza®), as well as entecavir (the generic equivalent of Baraclude®), which was launched exclusively during the third quarter of 2014.
European revenues of $757 million, a decrease of 3%, or 4% in local currency terms, compared to the third quarter of 2013. The decrease resulted mainly from our strategy of pursuing profitable and sustainable business in the region, with a significant decrease in Spain partially offset by increases in certain other markets. This strategy has continued to lead to notable improvements in the profitability of our European generics business.
ROW revenues of $551 million, a decrease of 3%, but an increase of 4% in local currency terms, compared to the third quarter of 2013. The increase in local currency terms was mainly due to higher revenues in Latin America and Canada, which were partially offset by lower revenues in other ROW markets.
API sales to third parties of $185 million (which is included in the market revenues above), an increase of 9%, or 10% in local currency terms, compared to the third quarter of 2013. The increase resulted from higher sales mainly in our ROW markets.
Generic medicine revenues comprised 48% of our total revenues in the quarter, down from 49% in the third quarter of 2013.
Generic Medicine Gross Profit
Gross profit from our generic medicine segment in the third quarter of 2014 amounted to $1.1 billion, an increase of $94 million, or 10%, compared to the third quarter of 2013. Gross profit margin for our generic medicine segment in the third quarter of 2014 increased to 44.3%, from 39.5% in the third quarter of 2013. The higher gross profit was mainly a result of lower expenses related to production, higher revenues from our API business and higher gross profit due to the change in the composition of revenues, as well as the impact of our efficiency measures.
Generic Medicine Profitability
Profitability of our generic medicine segment amounted to $556 million in the third quarter of 2014, an increase of 40% compared to $396 million in the third quarter of 2013. Generic medicine profitability as a percentage of generic medicine revenues was 22.9% in the third quarter of 2014, up from 15.9% in the third quarter of 2013. The increase was primarily due to higher gross profit coupled with a reduction in S&M expenses, partially offset by higher R&D expenses.
Specialty Medicine Segment
Specialty
Three Months Ended September 30,
2014 2013
U.S.$ in millions / % of Segment Revenues
Revenues $ 2,176 100.0% $ 2,071 100.0%
Gross profit 1,890 86.9% 1,788 86.3%
R&D expenses 223 10.2% 221 10.7%
S&M expenses 473 21.7% 445 21.5%
Segment profitability* $ 1,194 54.9% $ 1,122 54.2%
* Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
Specialty Medicine Revenues
Specialty medicine revenues in the third quarter of 2014 amounted to $2.2 billion, an increase of 5% compared to the third quarter of 2013. U.S. specialty medicine revenues amounted to $1.5 billion, up 2% compared to the third quarter of 2013. European specialty medicine revenues amounted to $467 million, an increase of 2%, or 1% in local currency terms, compared to the third quarter of 2013. ROW specialty medicine revenues amounted to $176 million, up 71%, or 81% in local currency terms, compared to the third quarter of 2013.
Specialty medicine revenues comprised 43% of our total revenues in the quarter, compared to 41% in the third quarter of 2013.
The increase in specialty medicine revenues from the third quarter of 2013 was primarily due to higher sales of our CNS and oncology products, which were partially offset by lower revenues of other specialty medicines.
The following table presents revenues by therapeutic area and key products for our specialty medicine segment for the three months ended September 30, 2014 and 2013:
Three Months Ended Percentage
September 30, Change
2014 2013 2014 - 2013
U.S. $ in millions
CNS $ 1,440 $ 1,362 6%
Copaxone® 1,107 1,052 5%
Azilect® 103 93 11%
Nuvigil® 94 87 8%
Oncology 299 251 19%
Treanda® 180 184 (2%)
Respiratory 218 235 (7%)
ProAir® 111 112 (1%)
Qvar® 64 69 (7%)
Women's Health 137 134 2%
Other Specialty 82 89 (8%)
Total Specialty Medicines $ 2,176 $ 2,071 5%
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
Global sales of Copaxone® (20 mg/mL and 40 mg/mL), the leading multiple sclerosis therapy in the U.S. and globally, amounted to $1.1 billion, an increase of 5% compared to the third quarter of 2013.
In the United States, sales of Copaxone® amounted to $800 million, in line with sales in the third quarter of 2013. At the end of the third quarter of 2014, according to September 2014 IMS data, our U.S. market shares for the Copaxone® products in terms of new and total prescriptions were 28.3% and 32.2%, respectively. Copaxone® 40 mg/mL accounted for 55% of total Copaxone® prescriptions.
Sales outside the United States amounted to $307 million, an increase of 21%, or 24% in local currency terms, compared to the third quarter of 2013. The increase is a result of the timing of a tender in Russia, partially offset by lower revenues in other markets.
Our global Azilect® revenues amounted to $103 million, an increase of 11% compared to the third quarter of 2013, while global in-market revenues increased 6% to $129 million. The increase in our sales reflects volume growth and price increases in the United States, as well as volume growth in Europe.
Sales of our oncology products amounted to $299 million in the third quarter of 2014, an increase of 19% compared to the third quarter of 2013. The increase resulted primarily from sales of our recently launched G-CSF products, Lonquex® and Granix®. Sales of Treanda® amounted to $180 million in the third quarter of 2014, compared to $184 million in the third quarter of 2013.
Sales of our respiratory products amounted to $218 million in the third quarter of 2014, a decrease of 7% compared to the third quarter of 2013. ProAir® revenues amounted to $111 million in the third quarter of 2014, down 1% compared to the third quarter of 2013, mainly due to pricing variances, largely offset by volume growth. Qvar® revenues amounted to $64 million in the third quarter of 2014, a decrease of 7% compared to the third quarter of 2013, due to pricing variances. Following EMA approval in April 2014, DuoResp Spiromax® for the treatment of asthma and COPD, was launched in the U.K., Norway, Sweden and Ireland during the quarter.
Specialty Medicine Gross Profit
Gross profit from our specialty medicine segment amounted to $1.9 billion in the third quarter of 2014, an increase of $102 million compared to the third quarter of 2013.
Gross profit margin for our specialty medicine segment in the third quarter of 2014 was 86.9%, compared to 86.3% in the third quarter of 2013.
Specialty Medicine Profitability
Profitability of our specialty medicine segment amounted to $1.2 billion in the third quarter of 2014, an increase of 6% compared to the third quarter of 2013, mainly due to higher revenues and partially offset by higher S&M expenses in connection with new product launches.
Specialty medicine profitability as a percentage of segment revenues was 54.9% in the third quarter of 2014, up from 54.2% in the third quarter of 2013.
The following tables present details of our multiple sclerosis franchise and of our other specialty medicines for the three months ended September 30, 2014 and 2013:
Multiple Sclerosis
Three months ended September 30,
2014 2013
U.S.$ in millions / % of MS Revenues
Revenues $ 1,107 100.0% $ 1,052 100.0%
Gross profit 991 89.5% 943 89.6%
R&D expenses 23 2.1% 18 1.7%
S&M expenses 104 9.4% 127 12.1%
MS profitability $ 864 78.0% $ 798 75.9%
Other Specialty
Three months ended September 30,
2014 2013
U.S.$ in millions / % of Other Specialty Revenues
Revenues $ 1,069 100.0% $ 1,019 100.0%
Gross profit 899 84.1% 845 82.9%
R&D expenses 200 18.7% 203 19.9%
S&M expenses 369 34.5% 318 31.2%
Other Specialty profitability $ 330 30.9% $ 324 31.8%
The data presented have been conformed to reflect the revised classification of certain of our products for all periods.
Other Activities
Our OTC revenues related to PGT amounted to $224 million, an increase of 1% compared to $222 million in the third quarter of 2013. In local currency terms, revenues increased by 7%. The increase in local currency terms was mainly due to higher sales in Russia and Latin America, partially offset by lower sales in Europe. PGT's in-market sales amounted to $372 million in the third quarter of 2014, a decrease of $2 million compared to the third quarter of 2013. This decrease was due to lower sales in Europe, partially offset by higher sales in Latin America and Asia.
Our revenues from OTC products in the third quarter of 2014 amounted to $225 million, compared to $286 million in the third quarter of 2013. The decline was mainly due to the sale of our U.S. OTC plants, previously purchased from P&G, back to P&G in July 2014.
Other revenues amounted to $225 million in the third quarter of 2014, mostly from the distribution of third-party products in Israel and Hungary, up 6% compared to the third quarter of 2013.
Key Metrics for the Third Quarter 2014
Non-GAAP information: Net non-GAAP adjustments in the third quarter of 2014 amounted to $258 million. Non-GAAP net income and non-GAAP EPS for the quarter are adjusted to exclude the following items:
Amortization of purchased intangible assets totaling $242 million, of which $239 million is included in cost of goods sold and the remaining $3 million in selling and marketing expenses;
Impairment of long lived assets of $151 million;
Income in connection with legal settlements and loss contingencies of $122 million;
Costs associated with cancellation of R&D projects of $52 million;
Branded prescription drug fee of $40 million;
Restructuring and other expenses of $23 million;
Regulatory actions taken in facilities of $13 million; and
Related tax benefit of $141 million.
Teva believes that excluding such items facilitates investors' understanding of its business. See the attached tables for a reconciliation of the U.S. GAAP results to the adjusted non-GAAP figures.
Exchange rate differences between the third quarter of 2014 and the third quarter of 2013 decreased our revenues by $57 million and reduced our operating income (both non-GAAP and GAAP) by $26 million.
Non-GAAP gross profit was $3.1 billion in the third quarter of 2014, up 4% from the third quarter of 2013. Non-GAAP gross profit margin was 60.6% in the third quarter of 2014, compared to 58.0% in the third quarter of 2013. GAAP gross profit was $2.8 billion in the third quarter of 2014, compared to $2.6 billion in the third quarter of 2013. GAAP gross profit margin was 55.5% in the quarter, compared to 52.0% in the third quarter of 2013.
Research and Development (R&D) expenditures (excluding costs associated with cancellation of R&D projects) in the third quarter of 2014 amounted to $360 million, compared to $348 million, in the third quarter of 2013. R&D expenses were 7.1% of revenues in the quarter, compared to 6.9% in the third quarter of 2013. R&D expenses related to our generic medicine segment amounted to $134 million in the third quarter of 2014, an increase of 13% compared to $119 million in the third quarter of 2013, mainly due to higher expenses associated with the development of complex and high-barrier generic products and with the development of generic products for the U.S. market. R&D expenses related to our specialty medicine segment amounted to $223 million in the third quarter of 2014, an increase of 1% compared to $221 million in the third quarter of 2013.
Selling and Marketing (S&M) expenditures (excluding amortization of purchased intangible assets and branded prescription drug fee) amounted to $907 million, or 17.9% of revenues, in the third quarter of 2014, compared to $961 million, or 19.0% of revenues in the third quarter of 2013. S&M expenses related to our generic medicine segment amounted to $388 million in the third quarter of 2014, a decrease of 17% compared to $469 million in the third quarter of 2013, mainly due to lower expenses in Europe, Russia and Japan as well as lower royalty payments in the United States. This decrease reflects our ongoing cost reduction efforts. S&M expenses related to our specialty medicine segment amounted to $473 million, an increase of 6% compared to $445 million in the third quarter of 2013. The increase was primarily due to higher expenditures related to our launches of DuoResp Spiromax®, Lonquex®, Granix® and Adasuve®, as well as preparation for additional product launches planned for the remainder of 2014.
General and Administrative (G&A) expenditures amounted to $293 million in the third quarter of 2014, or 5.8% of revenues, compared with $297 million, or 5.9% of revenues, in the third quarter of 2013.
Quarterly non-GAAP operating income was $1.5 billion in the third quarter of 2014, an increase of 13% compared to the third quarter of 2013. Quarterly GAAP operating income was $1.1 billion in the third quarter of 2014, compared to $0.8 billion in the third quarter of 2013.
Non-GAAP financial expenses amounted to $77 million in the third quarter of 2014, compared to $71 million in the third quarter of 2013. GAAP financial expenses for the third quarter of 2014 amounted to $84 million, compared to $76 million in the third quarter of 2013.
The provision for non-GAAP tax for the third quarter of 2014 amounted to $301 million on pre-tax non-GAAP income of $1.4 billion, for a quarterly tax rate of 21.1%. The provision for tax in the third quarter of 2013 was $185 million on pre-tax income of $1.3 billion, or 14.7%. GAAP tax expenses for the third quarter of 2014 amounted to $160 million on pre-tax income of $1.0 billion, for a quarterly GAAP tax rate of 15.6%. In the third quarter of 2013, tax expenses amounted to $12 million on pre-tax income of $725 million.
The increase in our quarterly tax rate mainly reflects the lapse of our tax exemptions under the previous Israeli tax incentives regime in 2013. Our profits in Israel are now generally subject to a tax rate of 9%.
Non-GAAP net income and non-GAAP diluted EPS were $1.1 billion and $1.32, respectively, in the third quarter of 2014, an increase of 6% and 4%, respectively, compared to the third quarter of 2013. GAAP net income and GAAP diluted EPS were $876 million and $1.02, respectively, in the third quarter of 2014, compared to $711 million and $0.84, respectively, in the third quarter of 2013.
Cash flow from operations generated during the third quarter of 2014 amounted to $1.4 billion, compared to $0.4 billion in the third quarter of 2013. The increase was mainly due to lower payments related to legal settlements in the third quarter of 2014. Free cash flow, excluding net capital expenditures and dividends amounted to $924 million, an increase of $958 million from the third quarter of 2013.
Cash and investments at September 30, 2014 amounted to $1.8 billion.
For the third quarter of 2014, the weighted average outstanding shares for the fully diluted earnings per share calculation was 861 million on both a GAAP and non-GAAP basis. At September 30, 2014, the outstanding shares for calculating Teva's market capitalization were approximately 855 million.
Shareholders' equity was $23.7 billion at September 30, 2014, compared to $23.6 billion at June 30, 2014. The increase primarily reflects GAAP net income of $0.9 billion, partially offset by a negative impact of $0.7 billion due to currency fluctuations.
Dividend and Share Repurchase Program
The Board of Directors, at its meeting on October 28, 2014, declared a cash dividend for the third quarter of 2014 of NIS 1.21 per share (approximately 32.1 cents according to the rate of exchange on October 28, 2014).
The record date will be November 17, 2014, and the payment date will be December 2, 2014. Tax will be withheld at a rate of 15%.
The Company announced today that, as authorized by the Board of Directors, it will increase its share repurchase program by $1.7 billion to $3 billion. The program has no time limitations. The Company intends to begin purchasing shares promptly.
Updated 2014 Financial Outlook
We are updating our 2014 full-year financial outlook, including non-GAAP diluted EPS guidance of $5.00-5.10 compared to $4.90-5.10 as announced in July 2014. See detailed guidance below.
2014 Non-GAAP Guidance:
Exclusive Copaxone® Scenario
Original Guidance
December 2013 Updated Guidance*
October 2014
Net revenues ($B) 19.9 - 20.8 20.0 - 20.3
Gross profit (%) 58% - 60% 59% - 60.5%
R&D expenses ($B) 1.30 - 1.45 1.4
S&M expenses ($B) 4.00 - 4.10 3.70 - 3.80
G&A expenses ($B) 1.2 1.2
Operating income ($B) 5.35 - 5.65 5.65 - 5.75
Finance expenses ($M) 310 - 350 310 - 330
Tax (%) 19% - 20% 19% - 20%
Number of shares (M) 840 - 850 856 - 862
EPS ($) 4.80 - 5.10 5.00 - 5.10
Cash flow from operations ($B) 3.0 4.5
* The introduction of AB-rated generic competition to Copaxone® could reduce operating income by $40-50 million per month.
Conference Call
Teva will host a conference call and live webcast to discuss its results for the third quarter of 2014 and overall business environment on Thursday, October 30, 2014, at 8:00 a.m. EST. A Question & Answer session will follow this discussion.
In order to participate, please dial the following numbers (at least 10 minutes before the scheduled start time): United States 1-877-391-1148; Canada 1-866-992-3017 International +44(0) 1452-580733; Israel 1-809431559, passcode: 13650976.
A live webcast of the call will also be available on Teva's website at: http://ir.tevapharm.com. Please log in at least 10 minutes prior to the conference call in order to download the applicable audio software.
Following the conclusion of the call, a replay of the webcast will be available within 24 hours on the Company's website. The replay can also be accessed until December 11, 2014, 8:00 a.m. EST by calling United States 1-866-247-4222; Canada 1-866-878-9237 or International +44 (0) 1452-550000; passcode: 13650976#.
About Teva
Teva Pharmaceutical Industries Ltd. (NYSE: TEVA) is a leading global pharmaceutical company, committed to increasing access to high-quality healthcare by developing, producing and marketing affordable generic drugs as well as innovative and specialty pharmaceuticals and active pharmaceutical ingredients.
Headquartered in Israel, Teva is the world's leading generic drug maker, with a global product portfolio of more than 1,000 molecules, sold in more than 100 countries, and with a direct presence in about 60 countries. Teva's specialty medicine businesses focus on CNS, including pain, respiratory, oncology, and women's health therapeutic areas as well as biologics. Teva currently employs approximately 45,000 people around the world and reached $20.3 billion in net revenues in 2013.
Teva's Safe Harbor Statement under the U. S. Private Securities Litigation Reform Act of 1995:
This release contains forward-looking statements, which are based on management's current beliefs and expectations and involve a number of known and unknown risks and uncertainties that could cause our future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks relating to: our ability to develop and commercialize additional pharmaceutical products; competition for our innovative products, especially Copaxone® (including competition from orally-administered alternatives, as well as from potential purported generic equivalents) and our ability to migrate users to our new 40 mg/mL version; the possibility of material fines, penalties and other sanctions and other adverse consequences arising out of our ongoing FCPA investigations and related matters; our ability to achieve expected results from the research and development efforts invested in our pipeline of specialty and other products; our ability to reduce operating expenses to the extent and during the timeframe intended by our cost reduction program; our ability to identify and successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions; the extent to which any manufacturing or quality control problems damage our reputation for quality production and require costly remediation; our potential exposure to product liability claims that are not covered by insurance; increased government scrutiny in both the U.S. and Europe of our patent settlement agreements; our exposure to currency fluctuations and restrictions as well as credit risks; the effectiveness of our patents, confidentiality agreements and other measures to protect the intellectual property rights of our specialty medicine; the effects of reforms in healthcare regulation and pharmaceutical pricing, reimbursement and coverage; governmental investigations into sales and marketing practices, particularly for our specialty pharmaceutical products; uncertainties related to our recent management changes; the effects of increased leverage and our resulting reliance on access to the capital markets; any failure to recruit or retain key personnel, or to attract additional executive and managerial talent; adverse effects of political or economical instability, major hostilities or acts of terrorism on our significant worldwide operations; interruptions in our supply chain or problems with internal or third-party information technology systems that adversely affect our complex manufacturing processes; significant disruptions of our information technology systems or breaches of our data security; competition for our generic products, both from other pharmaceutical companies and as a result of increased governmental pricing pressures; competition for our specialty pharmaceutical businesses from companies with greater resources and capabilities; decreased opportunities to obtain U.S. market exclusivity for significant new generic products; potential liability in the U.S., Europe and other markets for sales of generic products prior to a final resolution of outstanding patent litigation; any failures to comply with complex Medicare and Medicaid reporting and payment obligations; the impact of continuing consolidation of our distributors and customers; significant impairment charges relating to intangible assets and goodwill; potentially significant increases in tax liabilities; the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business; variations in patent laws that may adversely affect our ability to manufacture our products in the most efficient manner; environmental risks; and other factors that are discussed in our Annual Report on Form 20-F for the year ended December 31, 2013 and in our other filings with the U.S. Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Consolidated Statements of Income
(Unaudited, U.S. dollars in millions, except share and per share data)
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Net revenues 5,058 5,059 15,104 14,884
Cost of sales 2,249 2,429 6,937 7,071
Gross profit 2,809 2,630 8,167 7,813
Research and development expenses 412 348 1,109 1,016
Selling and marketing expenses 950 971 2,855 2,948
General and administrative expenses 293 297 897 923
Legal settlements and loss contingencies (122) 47 (67) 1,509
Impairments, restructuring and others 164 166 364 328
Operating income 1,112 801 3,009 1,089
Financial expenses - net 84 76 243 340
Income before income taxes 1,028 725 2,766 749
Income taxes 160 12 405 (157)
Share in losses of associated companies - net 5 7 13 30
Net income 863 706 2,348 876
Net loss attributable to non-controlling interests (13) (5) (20) (13)
Net income attributable to Teva 876 711 2,368 889
Earnings per share attributable to Teva: Basic ($) 1.02 0.84 2.78 1.05
Diluted ($) 1.02 0.84 2.76 1.04
Weighted average number of shares (in millions): Basic 855 845 852 850
Diluted 861 846 857 851
Non-GAAP net income attributable to Teva:* 1,134 1,072 3,226 3,050
Non-GAAP earnings per share attributable to Teva: Basic ($) 1.33 1.27 3.79 3.59
Diluted ($) 1.32 1.27 3.77 3.58
Weighted average number of shares (in millions): Basic 855 845 852 850
Diluted 861 846 857 851
* See reconciliation attached.
Condensed Consolidated Balance Sheets
(U.S. dollars in millions)
(Unaudited)
September 30, December 31,
2014 2013
ASSETS
Current assets:
Cash and cash equivalents 1,473 1,038
Accounts receivable 5,410 5,338
Inventories 4,591 5,053
Deferred income taxes 1,060 1,084
Other current assets 1,388 1,207
Total current assets 13,922 13,720
Other non-current assets 1,479 1,696
Property, plant and equipment, net 6,551 6,635
Identifiable intangible assets, net 5,936 6,476
Goodwill 18,720 18,981
Total assets 46,608 47,508
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt 1,832 1,804
Sales reserves and allowances 5,578 4,918
Accounts payable and accruals 2,894 3,317
Other current liabilities 1,365 1,926
Total current liabilities 11,669 11,965
Long-term liabilities:
Deferred income taxes 1,229 1,247
Other taxes and long-term liabilities 1,222 1,273
Senior notes and loans 8,818 10,387
Total long-term liabilities 11,269 12,907
Equity:
Teva shareholders' equity 23,633 22,565
Non-controlling interests 37 71
Total equity 23,670 22,636
Total liabilities and equity 46,608 47,508
Condensed Consolidated Cash Flow
(Unaudited, U.S. Dollars in millions)
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Operating activities:
Net income 863 706 2,348 876
Net change in operating assets and liabilities 182 (601 ) (155 ) 609
Items not involving cash flow 379 339 1,182 936
Net cash provided by operating activities 1,424 444 3,375 2,421
Net cash used in investing activities (528 ) (299 ) (1,103 ) (831 )
Net cash used in financing activities (329 ) (256 ) (1,782 ) (3,264 )
Translation adjustment on cash and cash equivalents (43 ) 14 (55 ) (57 )
Net change in cash and cash equivalents 524 (97 ) 435 (1,731 )
Balance of cash and cash equivalents at beginning of period 949 1,245 1,038 2,879
Balance of cash and cash equivalents at end of period 1,473 1,148 1,473 1,148
Non GAAP reconciliation items
(Unaudited, U.S. Dollars in millions)
Three months ended Nine months ended
September 30, September 30,
2014 2013 2014 2013
Amortization of purchased intangible assets - under cost of sales 239 290 756 838
Impairment of long-lived assets 151 131 208 195
Legal settlements and loss contingencies (122 ) 47 (67 ) 1,509
Costs associated with cancellation of R&D projects 52 - 52 -
Branded prescription drug fee 40 - 40 -
Costs related to regulatory actions taken in facilities - under cost of sales 13 10 45 38
Restructuring and other expenses 13 35 156 133
Amortization of purchased intangible assets - under selling and marketing expenses 3 10 27 29
Accelerated Depreciation 3 6 10 6
Purchase of research and development in process - - - 3
Financial expense 7 5 6 106
Corresponding tax benefit
(141 ) (173 ) (375 ) (696 )
Reconciliation between reported Net Income attributable to Teva and Earnings per share
as reported under US GAAP to Non-GAAP Net Income attributable to Teva and Earnings per share
Nine months ended September 30, 2014 Nine months ended September 30, 2013
U.S. dollars and shares in millions (except per share amounts)
GAAP Non-GAAP Adjustments Non-GAAP % of Net Revenues GAAP Non-GAAP Adjustments Non-GAAP % of Net Revenues
Gross profit (1) 8,167 811 8,978 59.4 % 7,813 882 8,695 58.4 %
Operating income (1)(2) 3,009 1,227 4,236 28.0 % 1,089 2,751 3,840 25.8 %
Net income attributable to Teva (1)(2)(3) 2,368 858 3,226 21.4 % 889 2,161 3,050 20.5 %
Earnings per share attributable to Teva - Diluted (4) 2.76 1.01 3.77 1.04 2.54 3.58
(1) Amortization of purchased intangible assets 756 838
Costs related to regulatory actions taken in facilities 45 38
Accelerated depreciation 10 6
Gross profit adjustments 811 882
(2) Restructuring, acquisition and other expenses 248 136
Impairment of long-lived assets 208 195
Legal settlements and loss contingencies (67 ) 1,509
Amortization of purchased intangible assets 27 29
416 1,869
Operating income adjustments 1,227 2,751
(3) Financial expense 6 106
Tax benefit (375 ) (696 )
Net income adjustments 858 2,161
(4) The weighted average number of shares was 857 and 851 million for the nine months ended September 30, 2014 and 2013, respectively. Non-GAAP earnings per share can be reconciled with GAAP earnings per share by dividing each of the amounts included in footnotes 1-3 above by the applicable weighted average share number.
Reconciliation between reported Net Income attributable to Teva and Earnings per share
as reported under US GAAP to Non-GAAP Net Income attributable to Teva and Earnings per share
Three months ended September 30, 2014 Three months ended September 30, 2013
U.S. dollars and shares in millions (except per share amounts)
GAAP Non-GAAP Adjustments Non-GAAP % of Net Revenues GAAP Non-GAAP Adjustments Non-GAAP % of Net Revenues
Gross profit (1) 2,809 255 3,064 60.6 % 2,630 306 2,936 58.0 %
Operating income (1)(2) 1,112 392 1,504 29.7 % 801 529 1,330 26.3 %
Net income attributable to Teva (1)(2)(3) 876 258 1,134 22.4 % 711 361 1,072 21.2 %
Earnings per share attributable to Teva - Diluted (4) 1.02 0.30 1.32 0.84 0.43 1.27
(1) Amortization of purchased intangible assets 239 290
Costs related to regulatory actions taken in facilities 13 10
Accelerated depreciation 3 6
Gross profit adjustments 255 306
(2) Impairment of long-lived assets 151 131
Legal settlements and loss contingencies (122 ) 47
Restructuring and other expenses 105 35
Amortization of purchased intangible assets 3 10
137 223
Operating income adjustments 392 529
(3) Financial expense 7 5
Tax benefit (141 ) (173 )
Net income adjustments 258 361
(4) The weighted average number of shares was 861 million and 846 million for the three months ended September 30, 2014 and 2013, respectively. Non-GAAP earnings per share can be reconciled with GAAP earnings per share by dividing each of the amounts included in footnotes 1-3 above by the applicable weighted average share number.
Segment Information
Generics Specialty
Three months ended September 30, Percentage Change Three months ended September 30, Percentage Change
2014 2013 2014 - 2013 2014 2013 2014 - 2013
U.S.$ in millions / % of Segment Revenues U.S.$ in millions / % of Segment Revenues
Revenues 2,432 100 % 2,489 100.0 % (2 %) 2,176 100 % 2,071 100.0 % 5 %
Gross Profit 1,078 44.3 % 984 39.5 % 10 % 1,890 86.9 % 1,788 86.3 % 6 %
R&D Expenses 134 5.5 % 119 4.8 % 13 % 223 10.2 % 221 10.7 % 1 %
S&M Expenses 388 16.0 % 469 18.8 % (17 %) 473 21.7 % 445 21.5 % 6 %
Segment Profitability* 556 22.9 % 396 15.9 % 40 % 1,194 54.9 % 1,122 54.2 % 6 %
* Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.
Segment Information
Generics Specialty
Nine months ended September 30, Percentage Change Nine months ended September 30, Percentage Change
2014 2013 2014 - 2013 2014 2013 2014 - 2013
U.S.$ in millions / % of Segment Revenues U.S.$ in millions / % of Segment Revenues
Revenues 7,345 100.0 % 7,222 100.0 % 2 % 6,317 100.0 % 6,174 100.0 % 2 %
Gross Profit 3,166 43.1 % 2,924 40.5 % 8 % 5,501 87.1 % 5,346 86.6 % 3 %
R&D Expenses 384 5.2 % 351 4.9 % 9 % 664 10.5 % 630 10.2 % 5 %
S&M Expenses 1,195 16.3 % 1,419 19.6 % (16 %) 1,456 23.0 % 1,348 21.8 % 8 %
Segment Profitability* 1,587 21.6 % 1,154 16.0 % 38 % 3,381 53.5 % 3,368 54.6 % §
* Segment profitability consists of gross profit, less S&M and R&D expenses related to the segment. Segment profitability does not include G&A expenses, amortization and certain other items.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.
§ Less than 0.5%.
Additional information
Multiple Sclerosis
Three months ended September 30, Percentage Change
2014 2013 2014 - 2013
U.S.$ in millions / % of MS Revenues
Revenues 1,107 100.0 % 1,052 100.0 % 5 %
Gross profit 991 89.5 % 943 89.6 % 5 %
R&D expenses 23 2.1 % 18 1.7 % 28 %
S&M expenses 104 9.4 % 127 12.1 % (18 %)
MS profitability 864 78.0 % 798 75.9 % 8 %
Other Specialty
Three months ended September 30, Percentage Change
2014 2013 2014 - 2013
U.S.$ in millions / % of Other Specialty Revenues
Revenues 1,069 100.0 % 1,019 100.0 % 5 %
Gross profit 899 84.1 % 845 82.9 % 6 %
R&D expenses 200 18.7 % 203 19.9 % (1 %)
S&M expenses 369 34.5 % 318 31.2 % 16 %
Other Specialty profitability 330 30.9 % 324 31.8 % 2 %
We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.
Additional information
Multiple Sclerosis
Nine months ended September 30, Percentage Change
2014 2013 2014 - 2013
U.S.$ in millions / % of MS Revenues
Revenues $ 3,116 100.0 % $ 3,186 100.0 % (2 %)
Gross profit 2,792 89.6 % 2,850 89.5 % (2 %)
R&D expenses 65 2.1 % 59 1.9 % 10 %
S&M expenses 389 12.5 % 367 11.5 % 6 %
MS profitability 2,338 75.0 % 2,424 76.1 % (4 %)
Other Specialty
Nine months ended September 30, Percentage Change
2014 2013 2014 - 2013
U.S.$ in millions / % of Other Specialty Revenues
Revenues $ 3,201 100.0 % $ 2,988 100.0 % 7 %
Gross profit 2,709 84.6 % 2,496 83.5 % 9 %
R&D expenses 599 18.7 % 571 19.1 % 5 %
S&M expenses 1,067 33.3 % 981 32.8 % 9 %
Other Specialty profitability 1,043 32.6 % 944 31.6 % 10 %
We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.
Reconciliation of our segment profitability
to Teva's consolidated income before income taxes
Three months ended September 30,
2014 2013
U.S.$ in millions
Generic medicine profitability 556 396
Specialty medicine profitability 1,194 1,122
Total segment profitability 1,750 1,518
Profitability of other activities 47 109
Total profitability 1,797 1,627
Amounts not allocated to segments:
Amortization 242 300
General and administrative expenses 293 297
Legal settlements and loss contingencies (122 ) 47
Impairments, restructuring and others 164 166
Other unallocated amounts 108 16
Consolidated operating income 1,112 801
Financial expenses - net 84 76
Consolidated income before income taxes 1,028 725
Reconciliation of our segment profitability
to Teva's consolidated income before income taxes
Nine months ended September 30,
2014 2013
U.S.$ in millions
Generic medicines profitability 1,587 1,154
Specialty medicines profitability 3,381 3,368
Total segment profitability 4,968 4,522
Profitability of other activities 165 241
Total profitability 5,133 4,763
Amounts not allocated to segments:
Amortization 783 867
General and administrative expenses 897 923
Legal settlements and loss contingencies (67 ) 1,509
Impairments, restructuring and others 364 328
Other unallocated amounts 147 47
Consolidated operating income 3,009 1,089
Financial expenses - net 243 340
Consolidated income before income taxes 2,766 749
Revenues by Activity and Geographical Area
(Unaudited)
Three Months Ended
September 30,
Percentage Change
Percentage Change
2014 2013 2014 - 2013 2014 - 2013
U.S. $ in millions in local currencies
Generic Medicine
United States $ 1,124 $ 1,137 (1 %) (1 %)
Europe* 757 784 (3 %) (4 %)
Rest of the World 551 568 (3 %) 4 %
Total Generic Medicine 2,432 2,489 (2 %) (1 %)
Specialty Medicine
United States 1,533 1,508 2 % 2 %
Europe* 467 460 2 % 1 %
Rest of the World 176 103 71 % 81 %
Total Specialty Medicine 2,176 2,071 5 % 5 %
Other Revenues
United States 3 66 (95 %) (95 %)
Europe* 184 194 (5 %) (3 %)
Rest of the World 263 239 10 % 14 %
Total Other Revenues 450 499 (10 %) (7 %)
Total Revenues $ 5,058 $ 5,059 § 1 %
* All members of the European Union, Switzerland, Norway, Albania and the countries of former Yugoslavia.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.
§ Less than 0.5%.
Revenues by Activity and Geographical Area
(Unaudited)
Nine Months Ended September 30, Percentage Change Percentage Change
2014 2013 2014 - 2013 2014 - 2013
U.S. $ in millions in local currencies
Generic Medicines
United States $ 3,240 $ 2,997 8 % 8 %
Europe* 2,389 2,460 (3 %) (6 %)
Rest of the World 1,716 1,765 (3 %) 6 %
Total Generic Medicines 7,345 7,222 2 % 3 %
Specialty Medicines
United States 4,482 4,485 § §
Europe* 1,450 1,351 7 % 4 %
Rest of the World 385 338 14 % 23 %
Total Specialty 6,317 6,174 2 % 2 %
Other Revenues
United States 104 192 (46 %) (46 %)
Europe* 597 578 3 % 2 %
Rest of the World 741 718 3 % 6 %
Total Other Revenues 1,442 1,488 (3 %) (2 %)
Total Revenues $ 15,104 $ 14,884 1 % 2 %
* All members of the European Union, Switzerland, Norway, Albania and the countries of former Yugoslavia.
The data presented has been conformed to reflect the revised classification of certain of our products for all periods.
§ Less than 0.5%.
Revenues by Product line
(Unaudited)
Three Months Ended
September 30,
Percentage Change
2014 2013 2014 - 2013
U.S. $ in millions
Generic Medicine $ 2,432 $ 2,489 (2 %)
API 185 170 9 %
Specialty Medicine 2,176 2,071 5 %
CNS 1,440 1,362 6 %
Copaxone® 1,107 1,052 5 %
Azilect® 103 93 11 %
Nuvigil® 94 87 8 %
Oncology 299 251 19 %
Treanda® 180 184 (2 %)
Respiratory 218 235 (7 %)
ProAir® 111 112 (1 %)
Qvar® 64 69 (7 %)
Women's Health 137 134 2 %
Other Specialty 82 89 (8 %)
All Others 450 499 (10 %)
OTC 225 286 (21 %)
Other Revenues 225 213 6 %
Total $ 5,058 $ 5,059 §
We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.
§ Less than 0.5%.
Revenues by Product line
(Unaudited)
Nine Months Ended September 30, Percentage Change
2014 2013 2014 - 2013
U.S. $ in millions
Generic Medicines $ 7,345 $ 7,222 2 %
API 546 552 (1 %)
Specialty Medicines 6,317 6,174 2 %
CNS 4,124 4,082 1 %
Copaxone® 3,116 3,186 (2 %)
Azilect® 320 273 17 %
Nuvigil® 283 244 16 %
Oncology 845 736 15 %
Treanda® 541 532 2 %
Respiratory 705 710 (1 %)
ProAir® 358 315 14 %
Qvar® 209 239 (13 %)
Women's Health 389 376 3 %
Other Specialty 254 270 (6 %)
All Others 1,442 1,488 (3 %)
OTC 768 849 (10 %)
Other Revenues 674 639 5 %
Total $ 15,104 $ 14,884 1 %
We recently changed the classification of certain of our products.
The data presented has been conformed to reflect the revised classification for all periods.
2014 Non-GAAP Guidance - Exclusive Copaxone® Scenario
Original Guidance Updated Guidance*
December 2013 October 2014
Net revenues ($B) 19.9 - 20.8 20.0 - 20.3
Gross profit (%) 58% - 60% 59% - 60.5%
R&D expenses ($B) 1.3 - 1.45 1.4
S&M expenses ($B) 4.0 - 4.1 3.7 - 3.8
G&A expenses ($B) 1.2 1.2
Operating income ($B) 5.35 - 5.65 5.65 - 5.75
Finance expenses ($M) 310 - 350 310 - 330
Tax (%) 19% - 20% 19% - 20%
Number of shares (M) 840 - 850 856 - 862
EPS ($) 4.80 - 5.10 5.00 - 5.10
Cash flow from operations ($B) 3.0 4.5
* The introduction of AB-rated generic competition to Copaxone® could reduce operating income by $40-50 million per month.
Source: Teva Pharmaceutical Industries Ltd.
Teva Pharmaceutical Industries Ltd.
IR Contacts:
Kevin C. Mannix, United States, 215-591-8912
Ran Meir, United States, 215-591-3033
Tomer Amitai, Israel, 972 (3) 926-7656
or
PR Contacts:
Iris Beck Codner, Israel, 972 (3) 926-7246
Denise Bradley, United States, 215-591-8974